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As new development remains tough to work out, senior living operators are shifting growth priorities and focusing on internal repositionings, renovations, and investing in key infrastructure to capture incoming demand.
Capital expenditures (CapEx) are a common budget line item for senior living operators, as they seek to remain competitive and current in a given market.
As new-development growth remains tough and costly in 2024, CapEx is a more affordable way for operators to achieve growth and improvement.
“Many of these markets are ultra-competitive, reflecting a demand from residents for higher-end amenities. We must remain forward-thinking in meeting these expectations, such as additional services, lifestyle options, and upgraded apartment features, to position Vi for continued success,” Vi President and CEO Gary Smith told Senior Housing News.
Vi Living operates 10 life plan communities across the country.
Other senior living operators, including Distinctive Living, LifeSpire of Virginia and Priority Life Care have invested heavily in CapEx projects in recent months and years, from repositioning for independent living to wide-ranging infrastructure upgrades to support operations.
In a tough inflationary environment where financing remains more costly to secure, CapEx spending has become a new growth vehicle for operators to maintain financial health without risking distress while improving portfolios.
‘The consumer has changed’
In the last two years, operators have worked to increase occupancy, revamp sales practices, and prepare for demographic-driven demand of older adults entering communities. But securing move-ins is no guarantee and requires strong operations — and an attractive portfolio of communities with the kinds of amenities and designs that new residents will want.
The baby boomer generation has been a highly sought-after demographic for the industry in recent years, and many organizations are attempting to read the tea leaves of various lifestyle and wellness options needed to attract this cohort. A recent study by ASHA looked to answer some of those questions.
Respondents identified a full kitchen, in-unit laundry room, living rooms, windows with natural light, and additional storage as their top five preferred in-unit amenities. Additionally, up to 83% of respondents considered exterior home maintenance, lawn and landscaping, 24-hour security, and appliance maintenance in residence as essential or desirable.
Chicago-based Vi Living is projected to have spent over $100 million in CapEx once 2024 is through, including a major $30 million redevelopment of Vi at Bentley Village in Naples, Florida, the latest investment into the community’s years-long capital improvement effort. The community’s sixth phase of the repositioning included the addition of 64 new independent living units, along with renovations to nursing care, assisted living, and memory care residences.
“Now more than ever, older adults – especially baby boomers – have high expectations for their retirement, and that includes the place they will call home during those years,” Smith said. “With heightened competition in the senior living marketplace, we must evolve to meet the needs and expectations of prospective residents.”
The project in Florida comes as Vi has also invested in a new care center and dining hall for Vi at Highlands Ranch in Highland, Colorado, as part of a broader $17 million renovation. Other areas include a $15 million investment across the portfolio for master planning and expansion projects to Vi communities’ dining rooms and care centers. Other areas of spending include mechanical, roofing, IT infrastructure and related capital projects, Smith said.
Smith added, Vi plans to continue to reinvest in communities to remain competitive in primary markets where competition has fueled record-level discounting in 2024.
As recently as a decade ago, Glen Allen, Virginia-based LifeSpire of Virginia had “deferred maintenance everywhere” with aging communities lagging behind in staying competitive, according to CEO Jonathan Cook.
That’s when the nonprofit senior living provider started repositioning communities to capture independent living demand, starting with a $50 million investment; an $85 million cottage addition to its Lakewood campus; and starting on renovations at The Glebe campus, adding 22 cottages.
LifeSpire is currently acquiring The Summit, a life plan community in Lynchburg, Virginia. Once that process is complete, the operator plans to invest $85 million in renovations and added independent living. Fast-forward to today, and LifeSpire spends, on average, $4 to $5 million annually in renovations after spending $325 million across the provider’s entire portfolio over the last decade, Cook said.
Independent living occupancy remains near-full and above 97%, with waitlists at all of the operator’s four life plan communities.
“We recognize the consumer has changed,,” Cook said. “If we were going to have a product that was going to compete in today’s market, we knew we had to have a product that emphasized lifestyle and promoted more active lifestyles and wellness programs.”
Before the year’s end, LifeSpire is also set to secure funding for new cottage development at The Glebe community and 18 cottages at The Summit community, Cook said. To guide future projects, LifeSpire fields resident feedback and suggestions before determining annual and routine CapEx projects, something that’s helped residents feel at home while the dust settles on a given renovation.
In the future, Cook envisions a portfolio composition that includes 80% of campuses being dedicated to independent living and 20% for assisted living, memory care, and skilled nursing.
“We’re making sure that we’ve added independent living and matching amenities to meet that new expectation,” Cook added.
To measure and chart new growth, Cook said senior living operators should consider conducting financial modeling to get a sense of the future viability of new projects, balancing cap rates, liquidity, and entering into favorable financing agreements, if necessary.
“We have that modeling for our communities for the next four to five years, and it helps us determine if we can afford it, know that it’s feasible and viable, and will work,” Cook said.
REITs help drive CapEx spending
Some senior living operators have ties with real estate investment trusts (REITs), either in joint-venture agreements or as part of a typical landlord-tenant relationship. Linking up with a larger partner typically gives operators more access to funding and resources for CapEx.
With the addition of the Ventas (NYSE: VTR) Celebration portfolio of communities, Fort Wayne, Indiana-based Priority Life Care has a “very robust” CapEx plan covering routine maintenance and improvements to communities, according to CEO Sevy Petras.
But executing on a CapEx plan doesn’t mean a “cookie-cutter, one-size-fits-all” approach, Petras said, noting that specific projects include renovations to amenities and residences across Celebration Village communities and Sky Active communities.
“I feel like really maximizing the spaces that are there and creating more areas for people to enjoy their meals or socialize,” Petras said of CapEx projects.
Some highlights included renovating communities to accommodate additional assisted living and memory care to integrate the higher-acuity setting into communities. Priority Life Care also updated exterior and interior spaces to update communities managed on behalf of American Healthcare REIT (NYSE: AHR).
“First, you have to have a plan, and you have to identify what’s the right package to put in place,” Petras said. “We never wanted it to feel like an afterthought.”
Priority Life Care operates 70 senior living communities across 11 states.
Freehold, New Jersey-based Distinctive Living has had an active year in 2024, acquiring Validus Senior Living and taking on management of a portfolio of Welltower (NYSE: WELL) communities. With some of those communities, CEO Joe Jedlowski said infrastructure projects and investments must be “value-driven” to impact resident experience and improve staffing in support of operations.
One value-driven CapEx project for Distinctive has been equipping communities with the necessary IT infrastructure to support not only residents with many smart devices but also improve a frontline team’s ability to execute and deliver care efficiently.
“We look at it from a hospitality perspective similar to a hotel because you need that infrastructure to support an average of 10 devices in a resident’s apartment,” Jedlowski said. “We’ve been very focused from a technology standpoint across the entire portfolio.”
As communities look to remain competitive, Jedlowski stressed how there was a “direct correlation” between CapEx spending within a building and its ability to quickly regain occupancy and improve margins. Heading into 2025, Jedlowski said Distinctive would review its oldest communities to determine necessary CapEx projects.
“We’re creating and driving value through CapEx,” Jedlowski told SHN. “We’re focused on fixing physical plant issues and driving operational value for these projects.”
